The requirements of the Sarbanes-Oxley Act and subsequent SEC rules have significant implications for the responsibilities of fund audit committees, the way they do business and the qualifications of their members. Not only did the act formalize measures to safeguard the independence of outside auditors, it redefined the role of fund audit committees in assuring transparency, and thus accountability, to shareholders. No less than in years past, the quality of a fund's financial reporting depends upon close and effective coordination among management, the audit committee and the audit firm. Sarbanes-Oxley altered, however, in crucial respects, the rules of engagement.
Understanding and adapting to this new environment is a challenge to audit committees throughout the fund industry. Particularly complex is the audit committee's role in pre-approving audit and non-audit services, given the relationships with the many service providers that support a fund's operations. Sarbanes-Oxley and the new SEC rules have entrusted to audit committees the responsibility for the actual engagement of auditors as well as specific pre-approval of both audit and non-audit services. These requirements underscore the need for audit committee members to exercise diligence in assuring the independence as well as the expertise, resources and experience of the firm selected to audit the fund.